#RussiaUkraine conflict rages on, Biden takes on container shipping

In a Fact Sheet issued on February 28, 2022, American President Joe Biden is announcing a "historic" agreement between the Department of Justice (DOJ) and the Federal Maritime Commission (FMC) to make sure that large ocean freight companies cannot take advantage of U.S. businesses and consumers.

The main grouse: "Right now, three global alliances, made up entirely of foreign companies, control almost all of ocean freight shipping, giving them power to raise prices for American businesses and consumers, while threatening our national security and economic competitiveness.

"These companies have formed global alliances—groups of ocean carrier companies that work together —that now control 80 percent of global container ship capacity and control 95 percent of the critical East-West trade lines, the note said. "This consolidation happened rapidly over the last decade. From 1996 to 2011, the leading three alliances operated only about 30 percent of global container shipping. Significant consolidation occurred in the years running up to the pandemic."

The World Shipping Council (WSC) was immediate with its response: "It is unfortunate that the President is demonising ocean carriers, the industry that is the backbone of the U.S. and global economy and that has been working around the clock through the pandemic to move more cargo than at any time in history.

"Allegations that the container shipping industry is highly concentrated and uncompetitive are factually incorrect. Ocean carriers actively compete against one another in the global marketplace, including on the shipping lanes most relevant for U.S. trade while concentration levels in many other U.S. industries are markedly higher than those in container shipping. In a clear sign of a competitive market responding to increased demand, competition increased in 2021, with more ships operated by a larger pool of carriers serving the trans-Pacific trade."

The White House note said: "Since the beginning of the pandemic, these ocean carrier companies have been dramatically increasing shipping costs through rate increases and fees. They increased spot rates for freight shipping between Asia and the United States by 100 percent since January 2020, and increased rates for freight shipping between the United States and Asia by over 1,000 percent over the same period. Oftentimes cargo owners are charged fees—known as "detention and demurrage" fees—even when they can't get access to their containers to move them. The FMC estimates that from July to September of 2021, eight of the largest carriers charged customers fees totaling $2.2 billion — a 50 percent increase on the previous three-month period."

So, what's the plan by White House? The DOJ will provide the FMC the support of attorneys and economists from the Antitrust Division for enforcement of violations of the Shipping Act and related laws. "The FMC will provide the Antitrust Division with support and maritime industry expertise for Sherman Act and Clayton Act enforcement actions. The agencies' announcement explains that competition in the maritime industry is integral to lowering prices, improving quality of service, and strengthening the resilience of supply chains."

The FMC will also continue to ramp up oversight of the global ocean shipping industry.

The note ended with a stern warning : "The President is calling on Congress to pass robust reforms to the ocean shipping industry, including reforms that address the current antitrust immunity for ocean shipping alliances." The President also believes Congress should provide additional tools for his administration to address problems in the ocean shipping industry."

The deeply flawed Ocean Shipping Reform Act passed by the House will not solve the landside logistics breakdowns that are at the heart of America's supply chain problems, says WSC. "In fact, the legislation as written would make existing congestion worse and stifle innovation. Policymakers must instead address the root cause of the logjam by seeking real solutions that take a comprehensive, forward-looking view of the supply chain, further strengthening the intermodal transportation system that has supported the U.S. economy throughout the pandemic."

A fact sheet issued by WSC goes on to add: "The Covid-19 pandemic continues to have a major impact on the entire supply chain including liner shipping. These demand-driven disruptions have led some to allege that the container shipping industry is highly concentrated, thereby implying that the industry is not competitive and that customers suffer as a result. This assertion is factually incorrect."

WSC said a commonly accepted measure to analyse concentration in markets, WSC, says, is the Herfindahl–Hirschman Index (HHI). "The HHI, which rates markets using a 0 to 10,000 scale, is used by competition authorities in the U.S. (the Department of Justice Antitrust Division and the Federal Trade Commission) and in the European Union (European Commission) to determine the existing level of concentration in a given market. The higher the number, the more concentrated the market — with an HHI below 1,500 considered competitive, between 1,500 to 2,500 moderately concentrated, and above 2,500 highly concentrated.

"On both trade lanes most relevant for U.S. trade (Asia–U.S. West Coast and Northern Europe–U.S.), HHI levels are indicative of competitive markets, and no single supplier has more than 25 percent of market share. The HHI for the container shipping industry serving Asia–U.S. West Coast is 1,018. For Northern Europe–U.S. it is 1,508. Even the higher figure barely breaks into the "moderately concentrated" range, and both figures are lower than in many other industries, including wireless carriers, domestic airlines and local broadcast television.

(Source: WSC)

Another common misconception involves vessel sharing agreements — VSAs — and their impact on competition in the industry. "VSAs are purely operational agreements that enable carriers to share space on one another's ships, which increases efficiency and supports more service to more ports than would otherwise be the case. Those arrangements are the backbone of the international containerized transportation system. Importantly, the operational agreements do not include commercial cooperation. Each member of a VSA determines its own commercial terms, including prices. Therefore, carriers within a VSA compete with each other, and with other carriers outside of that VSA, when selling their services to customers. Additionally, carriers offer and add their own services outside of the VSAs in which they participate. "

WSC went on to say that in a clear sign of a competitive market responding to increased demand, competition increased in 2021 with more ships operated by a larger pool of carriers serving the trans-Pacific trade. Since the start of the pandemic, the market share of the largest carrier alliances has decreased while the non-alliance share has doubled."

Container shipping pricing is very transparent and driven by supply and demand, an official spokesperson for WSC told The STAT Media Group. "The current supply chain congestion is due to pandemic-induced extreme demand coupled with operational disruptions as manufacturers have closed plants, and ports and inland logistics are overloaded, tying up capacity and reducing supply. This demand-supply imbalance is what has driven up rates.

"Over most of the past 20 years, the container market has been operating with overcapacity, and shippers have had high access to cheap ocean transport being able to book on short notice at low cost. They are understandably frustrated that this is no longer the case but there is no logic or evidence in jumping to the conclusion that this is somehow because of illegal behaviour."

Over to you EU, China, Korea et al..